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BYD YOUTUBE

In preparation for the BYD Q4 earnings release tomorrow, we’ve put together the pertinent forward looking commentary from BYD’s Q3 earnings call.

 


YOUTUBE

  • “We’re pleased to report that the positive trends we’ve experienced in the third quarter are continuing into October. Given these trends, we expect our fourth-quarter comparisons will be the best of the year.”
  • “So beyond the broader economic recovery, it appears as though Las Vegas is finally beginning its own recovery.”
  • “Improvements in our Las Vegas Locals business is more about increased spend per visit than it is about increased visitation, and increases in spend per visit, or consumer spending, is more about consumer confidence than it is about job growth or housing statistics.”
  • “We firmly believe that increases in consumer confidence can and will have an impact on our business long before the metrics in the housing and employment show significant improvement.”
  • [LV Locals] These trends are improving, and we have started the fourth quarter on a strong note by posting positive comparisons so far in the month of October—[both EBITDA and revenues]
    • “We’re comparing it to October of 2009, so obviously, higher revenue will be generated by higher spend per visit. I don’t know that we’re creating a lot of new customers today, but we certainly have seen customers come back that have been sitting on the sidelines given their own personal economic conditions; so there’s certainly benefit from the lower tier and unrateds as well.”
  • “We expect the fourth quarter interest expense for Borgata, including debt amortization fees associated with the new financing, to be approximately $22 million.”
  • “Our effective tax rate for the quarter was 30%. This rate is lower than last year due to the consolidation of Borgata into our results. We expect the tax rate to be approximately the same for the fourth quarter of this year.”
  • [Capex spending] I would say that the numbers that we had for 2010 are probably good ones to use for 2011”
  • [Revel competition] “Look, in the Atlantic City marketplace right now, there is plenty of capacity and so that any additional capacity will just create additional competition that I think is not needed. So we’d certainly like to see the competitive landscape kind of stay as is and not see additional capacity added to the marketplace.”
  • [Borgata] “We haven’t changed our credit policies. We’ve been always very disciplined around that. We haven’t changed anything really in terms of how – other than our kind of our own normal business practices in terms of promoting. I think the market itself in Atlantic City has gotten more promotional around some of the credit policies and some of the play, but Borgata has largely not participated in that. [Room remodel] probably will occur sometime during calendar ‘11.
  • “When we get into the fourth quarter and then the first quarter, the first being the highest volume quarter of a calendar year, I think you’ll see improvements. As far as direction on marketing, I would say that we’re obviously not going to sit back and ignore what’s going on in the town. I think we want to pay strong attention to and continue to establish customer loyalty that we have, and you’ll see us be as aggressive as we need to be to compete in a very competitive market.”
  • Q: When Pinnacle opens up their site in Baton Rouge, is there a sense of how many customers are coming from that region that you think you would be competing against Pinnacle with?
    • A: Next to none.
  • “I think relative to labor [no increase in expenses], you’re absolutely correct. I mean, obviously, it will impact nominally marketing expense, because as people play more, they earn more, as our programs go. But we are very focused on flow through to the EBITDA line as we see spend-per visit move up.”


WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM REMAINS NEGATIVE

This week's notable callouts are the MCDX municipal swap index breaking to its lowest levels since last November (this is a positive reflection on Muni credit), and the TED spread backing off its prior week highs. Among US Financials, ALL, AON and MMC tightened the most week over week, while JPM, C and RDN widened the most.


Financial Risk Monitor Summary (Across 3 Durations):

  • Short-term (WoW): Negative / 2 of 10 improved / 4 out of 10 worsened / 5 of 10 unchanged
  • Intermediate-term (MoM): Positive / 2 of 10 improved / 1 of 10 worsened / 8 of 10 unchanged
  • Long-term (150 DMA): Positive / 5 of 10 improved / 3 of 10 worsened / 3 of 10 unchanged 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM REMAINS NEGATIVE - summary

 

1. US Financials CDS Monitor – Swaps were mostly wider across domestic financials, tightening for just 1 of the 27 reference entities and widening for 26. 

Tightened the most vs last week: ALL, AON, MMC

Widened the most vs last week: JPM, C, RDN

Tightened the most vs last month: COF, MBI, AGO

Widened the most vs last month: PMI, RDN, MET

 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM REMAINS NEGATIVE - US CDS

 

2. European Financials CDS Monitor – Banks swaps in Europe were mostly wider, tightening for 15 of the 39 reference entities and widening for 24.

 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM REMAINS NEGATIVE - EURO CDS

 

3. Sovereign CDS – Sovereign CDS rose across Europe, climbing 11 bps on average last week.

 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM REMAINS NEGATIVE - sov cds

 

4. High Yield (YTM) Monitor – High Yield rates rose slightly last week, ending at 7.83, 4 bps higher than the previous week.  

 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM REMAINS NEGATIVE - high yield

 

5. Leveraged Loan Index Monitor – The Leveraged Loan Index fell last week, ending the week at 1614, down from 1619.   

 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM REMAINS NEGATIVE - lev loans

 

6. TED Spread Monitor – The TED spread tightened last week, a reversal of the prior week's widening. It ended the week at 17.6 bps, down 3.5 bp week-over-week.

 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM REMAINS NEGATIVE - ted spread

 

7. Journal of Commerce Commodity Price Index – Last week, the index held close to flat, falling just under a point to 33 by Friday.

 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM REMAINS NEGATIVE - JOC Commodity

 

8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds.  Last week yields rose 16 bps to 11.88%.

 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM REMAINS NEGATIVE - greece

 

9. Markit MCDX Index Monitor – The Markit MCDX is a measure of municipal credit default swaps.  We believe this index is a useful indicator of pressure in state and local governments.  Markit publishes index values daily on four 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. Our index is the average of their four indices.  Spreads fell last week by 2.5 bps, closing at 154 bps on Friday, eclipsing their prior low from last November.  

 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM REMAINS NEGATIVE - markit mcdx

 

10. Baltic Dry Index – The Baltic Dry Index measures international shipping rates of dry bulk cargo, mostly commodities used for industrial production.  Higher demand for such goods, as manifested in higher shipping rates, indicates economic expansion.  The BDI ended the week at 1245, down 4.3% week-over-week. 

 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM REMAINS NEGATIVE - baltic dry index

 

11. 2-10 Spread – We track the 2-10 spread as a proxy for bank margins.  Last week the 2-10 spread tightened by 11 bps to 270 bps. 

 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM REMAINS NEGATIVE - 2 10 spread

 

12. XLF Macro Quantitative Setup – Our Macro team sees the setup in the XLF as follows: 0.8% upside to TRADE resistance, -0.5% downside to TRADE support. 

WEEKLY RISK MONITOR FOR FINANCIALS: SHORT-TERM REMAINS NEGATIVE - xlf

 

Joshua Steiner, CFA

 

Allison Kaptur


Early Look

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TALES OF THE TAPE: SBUX, YUM, JACK, SONC, CMG, MRT, RRGB, KONA, CHUX, MRT

Notable news items from the past few days and price action from Friday’s trading.

  • SBUX price target was raised to $42 from $40 at Piper Jaffray
  • SBUX saw the U.S. Court of Appeals for the Second Circuit uphold a lower court’s ruling denying Kraft’s request for a preliminary injunction against Starbucks Coffee Company.
  • YUM’s Taco Bell is launching a $3 million television ad campaign this week to battle damage to its image from a lawsuit questioning its taco filling. 
  • JACK and SONC traded strongly on Friday on accelerating volume to close out a poor week.
  • CMG traded down 6.5% last week.
  • Aside from MRT, RRGB, KONA, and CHUX, last week was a poor week for casual dining. 
  • MRT traded up on Friday on strong volume as the company announced FY11 EPS guidance above Street estimates.

TALES OF THE TAPE: SBUX, YUM, JACK, SONC, CMG, MRT, RRGB, KONA, CHUX, MRT - stocks 228

 

Howard Penney

Managing Director



Growth's Failure

This note was originally published at 8am on February 23, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“The only real failure in life is not to be true to the best one knows.”

-Buddha

 

Yesterday was the biggest down day for US stocks since August 11th of last year. If and when the US stock market starts to really break down again, I think the only real failures in our industry will be revealed by those who have chosen not to evolve their global risk management process from 2008.

 

One down day certainly does not a bearish trend make. But a -2.1% drop in price momentum on an accelerating volume study of +31% (week-over-week) combined with a one-day rip of +27% in volatility (VIX) should definitely have the bulls’ attention.

 

PRICE, VOLUME, VOLATILITY …

 

That’s the core 3-factor model I use across risk management durations. That’s what I have stayed true to since I re-built the model in 2007. That’s just part of my process. In order to embrace uncertainty as a given, I think a risk manager is best equipped to be Duration Agnostic.

 

The only real failure in my process would be choosing not to change the process as this globally interconnected marketplace changes. One of the key changes that I’ve made in the last 3 years is changing the durations in my models, dynamically, as volatility levels change.

 

I model all security level volatility from the bottom up, but to simplify this point I’ll use the VIX. Here’s where a closing price of 21.11 in the Volatility Index (VIX) fits across my 3 core risk management durations (TRADE, TREND, and TAIL):

  1. TRADE (3-weeks or less) = bullish, with TRADE line support at 16.17
  2. TREND (3-months or more) = bullish, with TREND line support at 18.09
  3. TAIL (3-years or less) = bearish, with TAIL line resistance at  22.09

So, in Hedgeye-speak, what’s happened to the VOLATILITY factor in the SP500’s 3-factor model is critical to acknowledge. Whether the TRADE and TREND lines of bullish VIX support hold or not is something that Mr. Macro Market will decide but, for now, what was overhead resistance in VOLATILITY is now support – and that’s bearish for US stock market price momentum. A breakout in the VIX above the TAIL line will make things crash.

 

Now if you take this 3-factor model:

  1. PRICE down
  2. VOLUME up
  3. VOLATILITY up

And overlay it with a critical correlation – the inverse correlation between the SP500 and the VIX – you’ll see that this relationship has been one of the most important concurrent risk management indicators we’ve been offered since the early part of 2008. Ignore it at your own risk.

 

In the chart below, you can see that this isn’t foreign land for me to be treading on. When I made the bearish call for a US stock market correction in April of 2010 (our Hedgeye Macro Theme was “April Flowers, May Showers”) I gave you the same signals.

 

Well, almost the same…

 

Nothing in my models are ever really the same, particularly when I blow out the vantage point to that other sneaky little critter called The Rest of the World. That’s why my baseline Global Macro Risk Management Model includes 27-factors (which also change and re-weight dynamically) and include important real-time prices like the US Dollar, Indian stocks, Copper, etc…

 

And this is really where I can look myself in the mirror and say, despite the fierce lobbying for me to chase US stock market fund “flows” into their mid-February crescendo, I stayed true to the best top-down risk management process I know – when Global Inflation Is Accelerating, and Global Growth Is Slowing, it’s time to build up a large asset allocation to Cash.

 

Now not a lot of people have Street credibility on moving to Cash. Not only because they didn’t start making this move in early 2008, but because they don’t have an investment mandate that allows them to move into Cash. That’s an industry problem, not yours.

 

Global Growth Slowing is perpetuated by Global Inflation Accelerating. Anyone who has ever invested in emerging markets recognizes this basic reality. Everyone who is short Emerging Markets (EEM), India (IFN), and Brazil (EWZ), like we are in the Hedgeye Portfolio gets the profitability of it too.

 

The biggest question about Growth’s Failure in virtually all of Asia and the austere side of Europe that you can answer for yourself is will Global Growth Slowing affect the said “safe havens” of US and Japanese stocks?

 

My answer to this is not only implied by the high-frequency growth data that I grind through every macro morning, but it’s amplified by the math that stands behind the reality that Structural Long-Term Growth Is Impaired By Rising Sovereign Debts.

 

Whether it’s American, Japanese, or Western European debt, it’s all the same thing – debt. And that’s why we’re not surprised to see consumption growth slowing in these Developed Debtor countries as we infuse them with $95 oil and other inflation related taxes.

 

Growth’s Failure won’t be crystal clear to Wall Street until it’s in the rear-view mirror, but yesterday’s PRICE, VOLUME, and VOLATILITY readings combined with continued breakdowns in Asian Equities and a breakout in oil prices should read true “to the best one knows” about globally interconnected risks.

 

My immediate term support and resistance lines for the SP500 are now 1307 and 1330, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Growth's Failure - day1

 

Growth's Failure - day2


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